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Online Comics => Quantum Vibe => Topic started by: customdesigned on May 09, 2012, 11:26:35 pm

Title: Re: Monetary hijinks
Post by: customdesigned on May 09, 2012, 11:26:35 pm
with the fradulent introduction of excess money. Nor does it explain how these
cycles came about back in the days when countries were still on the gold
standard and fradulent introduction of excess money was consequently
impossible.

I'll help you out on that one small point.  A gold standard does not
prevent inflation when you allow unsecured debt.

Here is the evolution:

1) Carrying gold around is inconvenient, so people bring it to a bank
   where it is stored in a vault.  They get a piece of paper proving
   their ownership of X units of gold in the vault.

2) People accept the pieces of paper as payment, since going to the
   vault to retrieve the actual gold is inconvienient.

3) The bank will lend gold at interest, offering either actual gold
   or the paper.  The paper is far more convenient.

4) The bank realizes that they can loan gold that belongs to depositors.
   People rarely come for the real gold, so no one is the wiser.
   This practice doubles the amount of paper representing gold - inflation.

The evolution continues to fiat currency, where a bank creates currency by simply printing/entering in the computer an IOU and there is never any material currency.   But you get the idea.  Debt inflates the money supply when the paper IOU is negotiable.
Title: Re: Monetary hijinks
Post by: Scott on May 10, 2012, 08:55:47 am
That's a pretty fair summary. The practice you outline in Point 4 is called "fractional-reserve banking" by economists, as the banks only have a fraction of their deposits in the bank at any given time, with the balance going to borrowers. This is not so much a problem for time deposits, so long as the borrowers pay their notes on time, but when banks lend out their on-demand deposits they gamble that customers won't withdraw from their accounts more money than the banks have on hand. From time to time those gambles go bad as customers lose confidence, start withdrawing all their demand-deposit funds, and the banks experience a ruinous "run."
Title: Re: Monetary hijinks
Post by: macsnafu on May 10, 2012, 09:11:27 am

4) The bank realizes that they can loan gold that belongs to depositors.
   People rarely come for the real gold, so no one is the wiser.
   This practice doubles the amount of paper representing gold - inflation.

The evolution continues to fiat currency, where a bank creates currency by simply printing/entering in the computer an IOU and there is never any material currency.   But you get the idea.  Debt inflates the money supply when the paper IOU is negotiable.

That's why you want a good auditing system in place.  In free banking, maybe the customers want to be reassured that the bank is actually holding their demand deposits and not loaning them out.  So banks could submit to auditing from some reputable firm and makes the results of the audit publicly available.
Title: Re: Monetary hijinks
Post by: Aelar on May 10, 2012, 10:13:58 am

4) The bank realizes that they can loan gold that belongs to depositors.
   People rarely come for the real gold, so no one is the wiser.
   This practice doubles the amount of paper representing gold - inflation.

The evolution continues to fiat currency, where a bank creates currency by simply printing/entering in the computer an IOU and there is never any material currency.   But you get the idea.  Debt inflates the money supply when the paper IOU is negotiable.

That's why you want a good auditing system in place.  In free banking, maybe the customers want to be reassured that the bank is actually holding their demand deposits and not loaning them out.  So banks could submit to auditing from some reputable firm and makes the results of the audit publicly available.


Banks do submit to auditing which verifies they aren't loaning out more than $9 for every $10 deposited. (Well, that's a simplification (http://en.wikipedia.org/wiki/Reserve_requirement#Required_reserves)).

Without fractional reserve banking, the supply of loanable funds would be greatly reduced. Most economists believe this would be a bad thing for investment.

How would we have appropriate liquidity with full-reserve banking?
Title: Re: Monetary hijinks
Post by: myrkul999 on May 10, 2012, 10:23:00 am
How would we have appropriate liquidity with full-reserve banking?

Your project would have to have merit, which would encourage investors to actually put down real money to get it going. I think Kickstarter is a good example of how such a system might work.
Title: Re: Monetary hijinks
Post by: macsnafu on May 10, 2012, 10:26:20 am

4) The bank realizes that they can loan gold that belongs to depositors.
   People rarely come for the real gold, so no one is the wiser.
   This practice doubles the amount of paper representing gold - inflation.

The evolution continues to fiat currency, where a bank creates currency by simply printing/entering in the computer an IOU and there is never any material currency.   But you get the idea.  Debt inflates the money supply when the paper IOU is negotiable.

That's why you want a good auditing system in place.  In free banking, maybe the customers want to be reassured that the bank is actually holding their demand deposits and not loaning them out.  So banks could submit to auditing from some reputable firm and makes the results of the audit publicly available.


Banks do submit to auditing which verifies they aren't loaning out more than $9 for every $10 deposited. (Well, that's a simplification (http://en.wikipedia.org/wiki/Reserve_requirement#Required_reserves)).

Without fractional reserve banking, the supply of loanable funds would be greatly reduced. Most economists believe this would be a bad thing for investment.

How would we have appropriate liquidity with full-reserve banking?

Full-reserve banking only refers to demand deposit accounts, where people are free to "demand" their money at any time.  Time deposit accounts, like savings accounts and certficates of deposit, are specifically for loaning out--that's why they pay interest, to encourage people to put money in them.  That's also why they generally have restrictions on withdrawals, precisely because the money is loaned out.   The market rate of interest is based on the demand for borrowing money in relation to the supply of saving money, i.e., deferred consumption.

A central bank that maintains a monopoly on the production of money and deliberately injects new money into the economy to change the interest rates is thus interfering with the market and the market rate of interest, thus skewing the incentives for both saving and borrowing.  At lower rates of interest, there is a greater demand for borrowing, but fewer people will want to save, or defer their present consumption.  Thus, the more new money is injected, the more they have to continue to inject new money.  

However, since less saving (deferred consumption) is occurring, the resources that the borrowers need to complete their projects aren't available--which eventually leads to an economic bust of misallocation and unfinished projects.
Title: Re: Monetary hijinks
Post by: customdesigned on May 10, 2012, 10:29:55 am
There have also been times of hyper inflation on gold and silver standards - even with full reserve banking.  For instance, in the hey day of King Solomon, he collected tribute in the form of gold and silver from surrounding nations (interestingly, without conquering them - tribute was brought voluntarily to secure his favor, or hear his wisdom).  Despite being so all fired wise, he spent too much of the tribute in the local economy (as opposed to making gold shields for the palace and such) causing hyper inflation.  According to the Biblical description "silver was used for paving stones".  Not too different from using Continentals for toilet paper.  Now imagine that in the EFT universe someone discovers a large asteroid that is mostly gold/silver/platinum/other metallic currency.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 10, 2012, 10:43:43 am
There have also been times of hyper inflation on gold and silver standards - even with full reserve banking.  For instance, in the hey day of King Solomon, he collected tribute in the form of gold and silver from surrounding nations (interestingly, without conquering them - tribute was brought voluntarily to secure his favor, or hear his wisdom).  Despite being so all fired wise, he spent too much of the tribute in the local economy (as opposed to making gold shields for the palace and such) causing hyper inflation.  According to the Biblical description "silver was used for paving stones".  Not too different from using Continentals for toilet paper.  Now imagine that in the EFT universe someone discovers a large asteroid that is mostly gold/silver/platinum/other metallic currency.

Another way is to debase the actual currency, by "clipping" coins, or alloying them and re-minting. Both have been used historically to make money out of thin air.

An asteroid would have to be very large, and very pure, in order to destabilize the economy, even the Gold Rush only put a little dip in the relative value of gold.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 10, 2012, 07:53:51 pm
Sunny: What if Seamus invented a fabrication machine that could create gold/silver/platinum/other metallic currency from hydrogen, for the (present day) cost of a dollar a kilo. Jupiter has a mass of 1,900,000,000,000,000,000,000,000,000 kilos; you could manufacture 1,000,000,000,000 (a trillion) kilos a year for 190,000,000,000,000 (190 trillion) years before you'd even consume 10% of its mass. (That assumes an efficiency of 100% which probably wouldn't be possible, but what the heck!)

Well, there's always Bitcoin.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 10, 2012, 08:30:46 pm
If we assume that all the gold available as currency in the EFT universe is 165 million kilos,

That... is a bad assumption. Even a few years of mining will turn up a couple of big finds... which is the point of going up there to mine in the first place. And even if gold is as common as water, well, up in space, water is a pretty precious commodity. Fuel, air, and, of course, it's original purpose. Maybe the economy will be based on water, and not a precious metal.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 10, 2012, 09:10:58 pm

Well, there's always Bitcoin.

Sunny: Interesting.

http://en.wikipedia.org/wiki/Bitcoin

While we're not quite clear on how bitcoins are "mined", we see a potential problem. For now, there is a limit to how much can be mined based on computing cycles, electricity usage, and how much heat a processor can stand, but any technology that increases the speed and efficiency of processors, such as superconductance or quantum technology, could flood the market with bitcoins, unless artificial constraints are placed on the network to prevent that. Which wouldn't be much different different from the artificial constraints that might be used to prevent the production of too much fiat currency.

Bitcoins are mined by solving very hard math problems. If too many are mined, the math gets harder. If someone brought a quantum computer online, they'd soon be the only one getting the coins, but still at the same slow, steady - and steadily decreasing - rate. It's built into the protocol.

As for the gold, it honestly doesn't matter what the currency is based on (one of the potential currencies in the belt in EFT is Cokens - valued in liters of Coca-Cola), just so long as there is some limit other than the number of times you can hit the enter key to the production of the backing material.
Title: Re: Monetary hijinks
Post by: J Tunks on May 10, 2012, 10:59:43 pm
Hold the gun, remember that we are fixing the gold mining rate & limiting the imports still. Using just gold will inevitably introduce some additional issues.

And what is up with the legal system, seems a whole too much like our own...
Title: Re: Monetary hijinks
Post by: myrkul999 on May 10, 2012, 11:44:14 pm
Sunny: Okaaaaay. That makes sense as an analogy to gold mining. As the easiest gold is removed, it becomes harder to mine the rest. However, eventually you run out of gold, whereas theoretically you can never run out of bitcoins, being as there is no limit to the number of math problems.

Again, it's built into the algorithm that there's a hard limit of 21 million Bitcoins ever. The miners will continue to get rewards, but progressively smaller ones. It really is brilliant.

Quote
As for the gold, it honestly doesn't matter what the currency is based on (one of the potential currencies in the belt in EFT is Cokens - valued in liters of Coca-Cola), just so long as there is some limit other than the number of times you can hit the enter key to the production of the backing material.

We're not sure we understand that last part, after the parentheses, but a hard currency based on a manufactured good seems to us even worse. At least with gold it has to be located, mined, processed, transported and made into currency, naturally limiting its introduction into the market, whereas Cokens (for example) can be massed produced more easily and quickly. A manufacturer could gradually produce and build up a store of Cokens to ten times the amount "in circulation", then dump it on the market to devalue it. Of course the same thing could happen if some prospector drags home a trillion metric ton solid gold asteroid.

The point is, we don't see any mechanism in place to prevent this. The situation just seems to be based on the hope that it won't happen.

Of course, you can put in external controls that would force limits on how much of a vast new quantity of a commodity is introduced to prevent devaluation, but you could use the same controls to limit how much fiat currency is introduced to prevent hyperinflation. In fact, under these circumstances it seems that a commodity currency can become a fiat currency.

The Cokens are currency, backed by Coca-Cola. Each one is valued in an actual fluid unit of Coke. Sure, you could mass produce them, and flood the market with them, but when people tried to cash them in... It wouldn't end well. One side effect of caffeine withdrawal is crankiness. Rather elaborate way to commit suicide, if you ask me. Cokens, or the like, may be one of the most stable currencies in the belt. The point here is, something like a miner striking it rich with a huge nugget of gold, or a solid diamond asteroid, or whatever, is not the same as maliciously inflating a currency by hitting, as one person I know says, Ctrl-P. Even coin clipping, as bad as that is, is limited by the amount of coins that pass through your hands.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 11, 2012, 12:48:10 am
Sunny: Yeah, you're right, we forgot about that. But if the amount of bitcoins can never increase, then it can't expand with the economy. As the economy expands and more goods are produced, the purchasing power of bitcoins steadily decreases. At least with gold you can increase the currency in circulation to keep with production, assuming you have the extra gold.

Ah. But Bitcoins are also nearly infinitely divisible. Right now, I think the technology allows for 8 digits after the decimal point. That's more than enough to allow for expanding economy.

Quote
Not sure we're following you here. What we're talking about is the potential harm to a commodity-backed economy from flooding the market with a huge supply of the commodity, unless external (outside the market) controls are put in place to prevent the market being flooded. It doesn't much matter what the commodity is or how it's made.

But that doesn't sound any different from the harm that printing more fiat money would cause (except that the former results in hyper-deflation while the latter in hyperinflation).

Have you ever considered the logistics of "flooding the market" with Coca-Cola? That's a lot of sugar, water, and other ingredients. Especially a couple of AUs from earth. Even without the "shoot yourself in the foot" of devaluing your own product, that's a lot of delta-v to expend on a hair-ball scheme.
Title: Re: Monetary hijinks
Post by: customdesigned on May 11, 2012, 07:29:07 am

We're not sure we understand that last part, after the parentheses, but a hard currency based on a manufactured good seems to us even worse. At least with gold it has to be located, mined, processed, transported and made into currency, naturally limiting its introduction into the market, whereas Cokens (for example) can be massed produced more easily and quickly. A manufacturer could gradually produce and build up a store of Cokens to ten times the amount "in circulation", then dump it on the market to devalue it. Of course the same thing could happen if some prospector drags home a trillion metric ton solid gold asteroid.

With a manufactured commodity, it actually costs something to make it.  If the current value of the commodity as currency is so vastly higher than the cost of manufacture (and raw materials) that such a scheme looks attractive, then it *needs* to be devalued.  Users of the currency will prefer a gradual devaluation, and in general that will happen.  As the currency value starts to rise above actual cost, a few people will try to make money on the difference, bringing it down again.  Look at todays currency exchange market.

To *really* screw things up with sudden huge devaluation, you need a government stepping in to, for instance, ban or regulate production of coca-cola.  That would provide the incentive for stockpiling and dumping.  Whenever the US government talks about "speculators" causing oil (or whatever) prices to rise excessively, it is a sure bet that the market is compensating for government interference (e.g. banning local production of oil).
Title: Re: Monetary hijinks
Post by: macsnafu on May 11, 2012, 09:44:04 am

Sunny: Yeah, you're right, we forgot about that. But if the amount of bitcoins can never increase, then it can't expand with the economy. As the economy expands and more goods are produced, the purchasing power of bitcoins steadily decreases. At least with gold you can increase the currency in circulation to keep with production, assuming you have the extra gold.
This is the fallacy Keynesians make, thinking that increasing the money supply somehow helps in the production of goods.  It doesn't.  Instead, if you had a fixed suppy of money, and an increasing supply of goods, you would have deflation, as the value of the money would increase over time, allowing people to buy more stuff with the same amount of money, or the same amount of stuff for less money.

Quote

Not sure we're following you here. What we're talking about is the potential harm to a commodity-backed economy from flooding the market with a huge supply of the commodity, unless external (outside the market) controls are put in place to prevent the market being flooded. It doesn't much matter what the commodity is or how it's made.

People used commodities like gold or silver for exchange for several reasons, including its relative scarcity.  If the market were to be flooded by a huge supply of a commodity, then that would diminish the commodity's value as a medium of exchange, and at some point, people would probably turn to a different commodity to use for exchange instead.  Without government banking laws and restrictions, turning to something else as money is fairly easy to do if it needs to be done.  Furthermore, if we have free banking, there is most likely already a certain amount of competition for currency, anyway, and people would already be familiar with using different types of money, which would also help with any transition to different commodities.

Title: Re: Monetary hijinks
Post by: myrkul999 on May 11, 2012, 04:47:01 pm
Ah. But Bitcoins are also nearly infinitely divisible. Right now, I think the technology allows for 8 digits after the decimal point. That's more than enough to allow for expanding economy.
The more products there are the more they will have to be devalued to sell them all, and the more profits merchants will lose. As the economy "grows" (more products are manufactured), you will eventually reach a point where merchants are virtually giving the products away for free, making no profit at.

No, no... You're looking at it the wrong way. More products don't make the products worth less, they make bitcoins worth more.

Quote
We honestly don't see how this is relevant to the point, which is that an inherent flaw of a commodity-based economy is that it can experience hyper-deflation if too much of it is released into the market. Given the potential in the EFT universe of discovering a vast supply in the Belt, or in the QV universe of developing a fabrication technology that can mass produce cheap gold, this can be a real disaster.

I'm not certain where Coke is actually manufactured, but I do know there is a bottling plant on Ceres, it's mentioned in one of the first strips. Also, a massive jump in the supply of a commodity that backs a currency would be inflation, not deflation. But either way, that's a one-time event. Everyone would re-write their signs, and the economy would move on as though nothing had happened. Hyper-inflation is a constant process, with the printing press going 24/7. Barring some weird technology like a mass-converter, hyper-inflation of gold is pretty much impossible. Even assuming one were to do that, there are other commodities which the market could, and would, use.

Coke is produced to meet market demand (it's perishable, and a food product), and there's a fairly limited supply, being as I said, a food product, so it would be a pretty stable commodity. If someone wanted to flood the market with it (why?!?) they'd quickly exhaust local supplies, and so need to pull in supplies from elsewhere (thus the reference to using a bunch of Delta-v for a hare-brained scheme).

As for "counterfeiting", that's not it at all, it's competing products in the market. Pepsi might even put out a currency backed by its products. And the value of a Coken is denominated in liters of Coke. Competition would lower the value of a liter of coke relative to an ounce of gold, but not relative to a Coken.
Title: Re: Monetary hijinks
Post by: customdesigned on May 12, 2012, 08:53:30 pm
http://mises.org/books/denationalisation.pdf

Hayek has advocated that rather than re-instituting a government-mandated gold standard, a free market in money be allowed to develop, with issuers of money competing with each other to produce the best, most stable and healthy currency. This sparked an entire school of thought within economics, Free Banking, with banks not being banned from having fractional reserves as other Austrians such as Murray Rothbard advocated, but instead being free to experiment and discover the best method of conducting business.
That will be a long slog - just as slaves were accustomed to having food and shelter provided, and some adjustment is required to be personally responsible for such, people today are accustomed to government provided deposit insurance.  The adjustment would probably not be too bad if private insurance companies offered deposit insurance.  The price of said insurance would be a strong indicator to the consumer of the health of the bank :-)  He could decide to risk it anyway without insurance, or just pay up - eating the higher interest or whatever the attraction is. 

The hard part is when the first whiner files a lawsuit because he lost his uninsured deposit in a sketchy bank.
Title: Re: Monetary hijinks
Post by: Andreas on May 13, 2012, 12:29:13 am
Central banks become ABSOLUTELY necessary when banks stop trusting each other; the latest financial crisis involved just that.
When banks won't loan to other banks, how does the money move? How does the ready capital of wealthy areas move to the growth industries of less-wealthy areas, unless they happen to have the same majority bank.
Not fast enough for our present business paradigms...
Title: Re: Monetary hijinks
Post by: Andreas on May 13, 2012, 02:38:14 pm
http://mises.org/books/denationalisation.pdf

Hayek has advocated that rather than re-instituting a government-mandated gold standard, a free market in money be allowed to develop, with issuers of money competing with each other to produce the best, most stable and healthy currency. This sparked an entire school of thought within economics, Free Banking, with banks not being banned from having fractional reserves as other Austrians such as Murray Rothbard advocated, but instead being free to experiment and discover the best method of conducting business.

Wind back a bit... to the point where investment banking was deregulated last time; to where those lovely derivatives made of goddamned plutonium got made possible.

We CANNOT be idiots like Adam Smith on this; THERE IS NO BENEVOLENT GOD CONTROLLING ECONOMY - Instead there's a huge bunch of COMPLETE DICKS, with an average age of 55, and with enough cynicism in them that they know for a fact that if they were to devise a way to legally steal all the goddamn money in the world - drilling an irreparable hole into the future of the world - ensuring wars and famine and pestilence that they'd still be able to use that money to buy themselves a life of ridiculous luxury for the rest of their life expectancy, even as the world melts and warps all around them.

Letting bankers unfold their little fairy wings and be all they can be will frack every one of us over, slowly and painfully, and forever.

In fact, all the worlds economies would work a lot better if a whole lot of average joes with shotguns were standing behind every banker on the planet, whispering "no shenanigans" over and over and over again. Memento te mortalem esse... pertinent news flash for the Would-Be Gods of Money.
Title: Re: Monetary hijinks
Post by: Scott on May 13, 2012, 07:47:51 pm
Which is a good argument against having a central bank. Because all those complete dicks would almost inevitably wind up being in charge.

And by the way, during the last banking crisis it is not true that banks were refusing to lend to one another. What happened was that they would not lend to one another at the low interest rates they were used to paying. Raise your offer from 1.5 percent to 4.5 percent and you'll find takers. And the whole donnybrook was a result of central banks' inflationary monetary policies combining with everyone-should-own-a-house government policies and with legally monopolized rating agencies doing the politician's bidding (make it easier to underwrite bad mortgage loans) to create a housing bubble.
Title: Re: Monetary hijinks
Post by: Andreas on May 13, 2012, 11:50:35 pm
Which is a good argument against having a central bank. Because all those complete dicks would almost inevitably wind up being in charge.

And by the way, during the last banking crisis it is not true that banks were refusing to lend to one another. What happened was that they would not lend to one another at the low interest rates they were used to paying. Raise your offer from 1.5 percent to 4.5 percent and you'll find takers. And the whole donnybrook was a result of central banks' inflationary monetary policies combining with everyone-should-own-a-house government policies and with legally monopolized rating agencies doing the politician's bidding (make it easier to underwrite bad mortgage loans) to create a housing bubble.

It's true that the rates were the problem; and you're right in that the central banks did not help much, since the banks refused to repeat the rates given to them by central banks.

Of course, logically, in that situation the solution would be to use the central banks to incrementally raise the baseline rates until loaning from other banks would have started to feel more appealing for the banks. On the other hand, that would have made the housing loan defaulting problem worse more quickly, so the central banks were trapped. That was obviously part of the scheme run by the investment dicks, the way the central banks were trapped showed that the dicks had started to tap into using the central banks against the market.

On the other hand, a central bank is the only way to potentially have the People represented in the banking world (as other than sheep for the slaughter), the immediacy of the breakdown when the regulations were scrapped shows that those regulation were and are an absolute necessity. Even in an AnCap society, banks would have to be watched constantly, and the call of "no shenanigans" would have to be very easy to make. As it is, the best regulation for banking is "Keep your filthy hands where I can see them"... and an AnCap society will realize that too, if not immediately, then by the third market crash.
Title: Re: Monetary hijinks
Post by: macsnafu on May 14, 2012, 10:22:09 am
On the other hand, a central bank is the only way to potentially have the People represented in the banking world (as other than sheep for the slaughter), the immediacy of the breakdown when the regulations were scrapped shows that those regulation were and are an absolute necessity. Even in an AnCap society, banks would have to be watched constantly, and the call of "no shenanigans" would have to be very easy to make. As it is, the best regulation for banking is "Keep your filthy hands where I can see them"... and an AnCap society will realize that too, if not immediately, then by the third market crash.

A central bank is the way to intervene and distort the market rate of interest.  Banks would loan to each other if it's worthwhile, which it is at the market rate of interest, because that's the rate at which the market clears.

Yes, you want more transparency in banks, but I think that the competition of free banking will help ensure that.  A central bank merely helps obscure things.  It's hardly representative of "The People".  I would think that Public Choice theory applies here.
Title: Re: Monetary hijinks
Post by: Scott on May 14, 2012, 01:07:16 pm
Indeed -- the idea that a central bank would ever represent the "people's interest" is a utopian dream.
Title: Re: Monetary hijinks
Post by: Andreas on May 15, 2012, 12:33:45 am
Well... what I really want is a Grand High Inquisitor, with a license to waterboard, dismember and burn at the stake any bankers who get uppity ;D

Ok, scratch that, I want all banks to be forced to full disclosure of all actions, in a way such that private organizations may scrutinize all their doings real-time.
Open source the mothers. Money transfers can be anonymized down to the bank in question, the system is for monitoring banks, not their clients.
It is not that difficult to devise applications for monitoring money flows for dangerous tampering, if the data is presented in a standardized way... and the apps will improve continuously, especially the open-source ones, since they're always in de facto Beta. No more secrets.
Of course, the manner of forcing can be positive: if the public, by its banking preferences, shows that closed banks are less trusted than open banks, then the openness will spread. Of course, there will always be criminal organizations who will prefer closed banks, but then that may in turn mean that payment systems will start issuing warnings when dealing with such "banks of ill repute" ;D
Title: Re: Monetary hijinks
Post by: myrkul999 on May 15, 2012, 12:54:36 am
...if the public, by its banking preferences, shows that closed banks are less trusted than open banks, then the openness will spread. Of course, there will always be criminal organizations who will prefer closed banks, but then that may in turn mean that payment systems will start issuing warnings when dealing with such "banks of ill repute" ;D

Precisely. Just as good money will drive out bad, good banks will drive out bad. It's already starting. I've seen some commercials for a bank called "Ally", which, while I haven't checked it out, does look a little better. I want to stress again that I've not looked into this bank one whit. I'm just saying that based on their propaganda, they're better than your average bank.
Title: Re: Monetary hijinks
Post by: Andreas on May 15, 2012, 01:30:53 am
And don't discount crowd sourced financing (scratching the "bank" part entirely) where people invest money into individualized loans, so that each user can lend and borrow to and from thousands of other users. If it catches on, and if the risks turn out to be lower than with greed-based banking, then it could be just the thing. If institutional lenders like pension funds get into it, paying for more streamlined backgrounding, it could even become the standard.
Title: Re: Monetary hijinks
Post by: Sieggy on May 15, 2012, 06:24:17 am
...if the public, by its banking preferences, shows that closed banks are less trusted than open banks, then the openness will spread. Of course, there will always be criminal organizations who will prefer closed banks, but then that may in turn mean that payment systems will start issuing warnings when dealing with such "banks of ill repute" ;D

Precisely. Just as good money will drive out bad, good banks will drive out bad. It's already starting. I've seen some commercials for a bank called "Ally", which, while I haven't checked it out, does look a little better. I want to stress again that I've not looked into this bank one whit. I'm just saying that based on their propaganda, they're better than your average bank.
Long ago, I closed all but one account with BoA, as I consider them to be exceptionally loathsome liars, cheats, thieves, and scoundrels. The only account I still have with them is for depositing cash (I have a mobile business and need a bank with readily available branches for making deposits - carrying large amounts of cash is just asking for trouble), and as soon as I make a cash deposit, I get on-line and electronically transfer all funds in excess of the bare minimum required to avoid incurring fees over to my Credit Union. I make a VERY serious effort not to contribute a farthing to their profits. I don't use their debit card, as I know it generates fees for them, and the only activity on that account is cash in, electronic transfer out. They're really not happy with me, but as long as I keep that minimum balance and never, ever dip below it, there's nothing they can do . . .
Title: Re: Monetary hijinks
Post by: bjdotson on May 15, 2012, 08:53:10 am

4) The bank realizes that they can loan gold that belongs to depositors.
   People rarely come for the real gold, so no one is the wiser.
   This practice doubles the amount of paper representing gold - inflation.

The evolution continues to fiat currency, where a bank creates currency by simply printing/entering in the computer an IOU and there is never any material currency.   But you get the idea.  Debt inflates the money supply when the paper IOU is negotiable.

That's why you want a good auditing system in place.  In free banking, maybe the customers want to be reassured that the bank is actually holding their demand deposits and not loaning them out.  So banks could submit to auditing from some reputable firm and makes the results of the audit publicly available.

In a free society, competing banks would solve the auditing problem. All you need to do is take out your on demand gold and deposit it in another bank.  Since competing banks would probably offer incentives to do this; it would be something all banks would have to take into account in their business policies.
Title: Re: Monetary hijinks
Post by: Tucci78 on May 15, 2012, 10:44:25 pm
Perhaps coincidentally, the Ludwig von Mises Institute published on 14 May a transcript (see http://mises.org/daily/6044/Leave-Money-Production-to-the-Market (http://mises.org/daily/6044/Leave-Money-Production-to-the-Market)) of Jeffrey M. Herbener's 8 May testimony before the Subcommittee on Domestic Monetary Policy and Technology of the U.S. House of Representatives' Committee on Financial Services.

The title was "Leave Money Production to the Market."  From this I quote:
Quote
Like the production of all other goods, production of money left to the market is regulated by profit and loss. Additional money is produced when demand for money increases or demand for other goods produced by the same resources decreases. If the demand for money increased, the value of gold coins would rise. Minting companies would increase production to capture the profit. As they increased the supply of the certification service, its price would decline; and as they increased their demands for resources to certify gold, resource prices would rise and the profit would dissipate. If demand for other goods declined, input prices would fall. Minting companies would increase production to capture the profit and, by doing so, eliminate profit from further production. In this way production of money in the market is socially optimal.

Dr. Herbener's conclusion reads in toto:
Quote
No one can describe today the configuration of commodity money and money certificates that entrepreneurs would bring about if permitted to operate private enterprises in their production any more than one could have predicted in 1900 the development of the 21st-century automobile industry or predicted in 1950 the 21st-century consumer-electronics industry. What we do know is that their production would be regulated by profit and loss and therefore would result in the satisfaction of people's preferences. The monetary inflation and credit expansion of our elastic currency system would be eliminated and with it the booms and busts that have plagued our history.

If we're going to discuss a subject gravely and extensively considered by Austrian School economists, wouldn't we do well to look explicitly into what these scholars have written and are presently uttering as the results of their thoughts?
Title: Re: Monetary hijinks
Post by: macsnafu on May 16, 2012, 09:15:21 am
Perhaps coincidentally, the Ludwig von Mises Institute published on 14 May a transcript (see http://mises.org/daily/6044/Leave-Money-Production-to-the-Market (http://mises.org/daily/6044/Leave-Money-Production-to-the-Market)) of Jeffrey M. Herbener's 8 May testimony before the Subcommittee on Domestic Monetary Policy and Technology of the U.S. House of Representatives' Committee on Financial Services.

The title was "Leave Money Production to the Market." 
I thought it was a good article.  But then, I don't need more convincing of the necessity of getting government out of the money production business.  What I need are ways to convince other people of it.
Title: Re: Monetary hijinks
Post by: rfaramir on May 16, 2012, 12:23:34 pm
excellent article! Thanks for pointing us at it!

a quote from it:
"The production of fiat paper money cannot be regulated by profit and loss. It is always profitable to produce more."

The reason this is so is because the foundation of our elastic currency is fraud. Both the central bank and the member banks create new claims to value from thin air, violently (technically fraudulently but equivalent to violence) ripping away the purchasing power of all existing units of that currency.

Currency units are general claims to value (say, ounces of gold in a vault), but not specific claims. If the claims were specific (say, bar of gold #4055 in BoG's local vault), it would be much clearer the fraud involved. Creating two (or more) claims of (complete, i.e., non-fractional) ownership to the same property is fraud plain and simple.

This is the fraud of fractional reserve banking, even under a gold standard. Without gold-convertability, it is even worse, as there is no basis for value in the currency at all, other than what other people via inertia tend to impute to it.

When the Federal Reserve Bank creates new units of Federal Reserve Notes, it is fraud because there is nothing backing the notes at all. When a member bank create fiduciary media backed by only a fraction of its reserves, it is creating multiple claims to the same property, and therefore also fraud.

You know the central bank is a fraud when people describe it as "lender of last resort." What interest rates do "lenders of last resort" charge in the free market? Very high rates, by dint of them being your last resort. Who charges the lowest rates in the current market? The Fed. They are obviously the lender of *first* resort, to those privileged few who are allowed to have an account with them (member banks).
Title: Re: Monetary hijinks
Post by: Tucci78 on May 16, 2012, 02:04:09 pm
Perhaps coincidentally, the Ludwig von Mises Institute published on 14 May a transcript (see http://mises.org/daily/6044/Leave-Money-Production-to-the-Market (http://mises.org/daily/6044/Leave-Money-Production-to-the-Market)) of Jeffrey M. Herbener's 8 May testimony before the Subcommittee on Domestic Monetary Policy and Technology of the U.S. House of Representatives' Committee on Financial Services.

The title was "Leave Money Production to the Market." 

I thought it was a good article.  But then, I don't need more convincing of the necessity of getting government out of the money production business.  What I need are ways to convince other people of it.

Dr. Herbener's testimony before that subcommittee of the U.S. House of Representatives was for precisely that purpose - "to convince other people" of the viability and value of commodity money in the four genuine functions of such an instrument in social interaction ("a medium, a measure, a standard, a store").

Consider what you've read or heard about the alleged reasons for continuing the government's incontinent debauchery of the U.S. currency, the objections voiced - even in this forum - to the restoration of what has been accurately called "honest money," and then bear in mind that Dr. Herbener's arguments weren't addressed to those of us who understand and accept his sensible and straightforward observations but rather to the beneficiaries of "legal" counterfeiting - a bunch of Congresscritters and their flunkies - who continue writhing and sputtering and soiling their Depends trying to evade acknowledgement.
Title: Re: Monetary hijinks
Post by: macsnafu on May 17, 2012, 09:10:54 am
Perhaps coincidentally, the Ludwig von Mises Institute published on 14 May a transcript (see http://mises.org/daily/6044/Leave-Money-Production-to-the-Market (http://mises.org/daily/6044/Leave-Money-Production-to-the-Market)) of Jeffrey M. Herbener's 8 May testimony before the Subcommittee on Domestic Monetary Policy and Technology of the U.S. House of Representatives' Committee on Financial Services.

The title was "Leave Money Production to the Market." 

I thought it was a good article.  But then, I don't need more convincing of the necessity of getting government out of the money production business.  What I need are ways to convince other people of it.

Dr. Herbener's testimony before that subcommittee of the U.S. House of Representatives was for precisely that purpose - "to convince other people" of the viability and value of commodity money in the four genuine functions of such an instrument in social interaction ("a medium, a measure, a standard, a store").

Consider what you've read or heard about the alleged reasons for continuing the government's incontinent debauchery of the U.S. currency, the objections voiced - even in this forum - to the restoration of what has been accurately called "honest money," and then bear in mind that Dr. Herbener's arguments weren't addressed to those of us who understand and accept his sensible and straightforward observations but rather to the beneficiaries of "legal" counterfeiting - a bunch of Congresscritters and their flunkies - who continue writhing and sputtering and soiling their Depends trying to evade acknowledgement.

Well, then, here's hoping that Congresscritters and their aides are smart enough to understand what was being said.  Short of Ron Paul, I'm rather doubtful. 

Heh--everybody should have "aides"!
Title: Re: Monetary hijinks
Post by: Tucci78 on May 17, 2012, 07:44:05 pm
Regarding Dr. Herbener's testimony on 8 May (see http://mises.org/daily/6044/Leave-Money-Production-to-the-Market (http://mises.org/daily/6044/Leave-Money-Production-to-the-Market)) before the Subcommittee on Domestic Monetary Policy and Technology of the U.S. House of Representatives' Committee on Financial Services:   

Well, then, here's hoping that Congresscritters and their aides are smart enough to understand what was being said.  Short of Ron Paul, I'm rather doubtful. 

Heh--everybody should have "aides"!

Oh, I'm abso-friggin'-lutely certain that everyone sitting on - as well as supporting - that Subcommittee (stupid party and evil party alike) understood precisely what Dr. Herbener was saying to them.

That's why any genuine prospect of such a market-controlled alternative to "legal" counterfeiting would have them soiling their britches on the double-quick. 

There's nothing of ignorance in their unalloyed thieving bastardliness.  These people are cunning sons of bitches, else they wouldn't be where they are, doing what they do.
Title: Re: Monetary hijinks
Post by: Sieggy on May 17, 2012, 08:34:37 pm
Oh, I wouldn't say THAT - there are some spectacularly stupid people in office nowadays. They may be cunning politicians, but their grasp of economics, civics, and the fundamentals of history is essentially nonexistent. I honestly think that most of both the House and Senate couldn't pass a 10th grade civics or American history test.

All a politician has to do anymore to be elected is find a position that appeals to his base, hammer that continually, and convince them that since he agrees with whatever they want to hear he a good guy, and that anyone who disagrees with them on any position, no matter how minor, is not only wrong, but he's evil. That and convince enough wealthy donors that he'll do whatever is demanded of him.

One of the problems that congress is having now are the people in office who have absolutely no idea how the system works, and in order to cover that ignorance, they take ever more extreme positions.
Title: Re: Monetary hijinks
Post by: Andreas on May 21, 2012, 03:11:45 am
It's not just about domestic money, though. There are such convoluted markets going on that the based-on-value dollar can't keep up with the based-on-demand dollar. People (i.e. foreign nations/companies) need dollars to make trade with other people (other foreign nations/companies). How would it work out if the based-on-value dollars were all tied up in the foreign trade of other nations?

Like it or not, all the currencies of the world are now tied into a mesh of international value negotiation that nobody understands. It is the based-on-(market-)need, a third kind, close to Keynesian thinking that seems to best picture what is in fact going on. Because nobody can predict the flows and eddies of the pan-national sea of money, going with the flow does in fact make sense. It may lead to rocky shores, especially when dickheads start manipulating what they do not understand (economy nobel prize winners have a tendency to go bankrupt, too)... but the other known ways of navigating are more immediately disastrous, leading to one form of impasse or another.
Letting the market define the money leads to the problem that the market sentience is not channeled to any location, there is no method for distilling the sense of it, or for letting it know it is responsible for something. In effect it might turn out to be very similar to Keynesian methods.
Title: Re: Monetary hijinks
Post by: Eddie T on May 21, 2012, 09:18:47 am
free banking cant exist without government. it requires a state to step in and suspend payment in specie whenever a bank run happens, which is what repeatedly occurred in the US prior to the Civil War. in fact, a bank that conducts reserve banking is the easiest target for speculative attacks. all one has to do is acquire all the outstanding bank notes, then take them to bank for redemption. if the speculator short sells the bank's stock prior to the attack, when the bank fails to redeem all the bank notes, the stock price plummets and massive profits await in addition to the gold from banknotes that are redeemed. even a 90% reserve bank still makes good target because of the potential return.

also, what free banking advocates forget is that the average person is not going to keep banknotes from 100 different banks. instead, they will only keep banknotes from the banks they have business with. all other banknotes they receive would be redeemed. however, they dont need to go through the trouble of redeeming them all themselves. instead, theyll deposit them at their bank in exchange for banknotes from that bank. and that bank will immediately redeem the banknotes for gold, and handle the logistics of transporting the gold to their vaults. as a result, banks can only inflate the banknotes possessed by their customers. and if the clients suspect they dont have the gold they claim they have, theyll sell the banknotes to a speculator (who will buy it below par value) or carry out the bank run themselves.

in any case, fractional reserve banking leads to self-destruction so long as theres no government to step in and save them by breaking contracts for redeeming banknotes for precious metals.
Title: Re: Monetary hijinks
Post by: customdesigned on May 21, 2012, 10:53:43 am
in any case, fractional reserve banking leads to self-destruction so long as theres no government to step in and save them by breaking contracts for redeeming banknotes for precious metals.
If the fractional reserve banking is for demand deposits (i.e. checking account), then they deserve to die.  For Savings (or Interest Checking) accounts, on the other hand, the express purpose of the account is to loan out the assets at interest.  The contract would simply stipulate conditions under which the bank would delay withdrawal - e.g. a run on the bank. 

Of course, that brings to mind the scene from "It's a Wonderful Life" where George shows his poor widow client the contract for her savings account, but that doesn't help her dire need for the money *now*.  Nevertheless, the government doesn't improve the situation.  A deposit insurance policy (preferably not a government monopoly one), on the other hand, would.

Title: Re: Monetary hijinks
Post by: Andreas on May 21, 2012, 01:49:01 pm
...A deposit insurance policy (preferably not a government monopoly one), on the other hand, would.
Which sort of makes sense until we realize that an insurance company is a kind of bank with very specific loaning rules (you pay the interests before you cash in the loan, and you can only cash in the loan if X happens). A run on an insurance company might not be orchestratable, but nature's whim can still make it happen.
And of course, insurance companies make investments too.
Title: Re: Monetary hijinks
Post by: macsnafu on May 21, 2012, 01:55:38 pm
Sure.  If insurance companies want to offer banks some kind of depositors' insurance, or if banks got together to self-insure, hey, no problem.  But It's easier to just maintain full reserves, and then there's no need for depositors' insurance.
Title: Re: Monetary hijinks
Post by: rfaramir on May 21, 2012, 05:11:51 pm
free banking cant exist without government. it requires a state to step in and suspend payment in specie whenever a bank run happens, which is what repeatedly occurred in the US prior to the Civil War.
I think what you mean is fractional-reserve banking can't exist without government. A bank run is the free market's method of dealing with fraudulent banks. Only a State has the power to suspend the free market for the banksters' sake, protecting them from the run. Free banking is explicitly designed to function without a State.

Quote from: Eddie T
also, what free banking advocates forget is that the average person is not going to keep banknotes from 100 different banks.
The free banking advocates I read know this full well.

Quote from: Eddie T
in any case, fractional reserve banking leads to self-destruction so long as theres no government to step in and save them by breaking contracts for redeeming banknotes for precious metals.
Exactly. That's the purpose of a central bank, to step in and assist their fellow thieves when they get caught with their pants down. And only a government-backed central bank can suspend laws to fully protect the thieves. Suspension of specie-redemption should be prima facia (is the the phrase I want?) evidence that the bank is bankrupt.
Private central banks will be a natural development of free banking, and we actually had one in the US: the Suffolk Bank and its affiliates. Private central banks keep the fraud at a manageable level, both among the affiliates and (especially) among its rivals, essentially doing a bank run on any outsiders that over-inflate.

I'm not totally sold on free banking, as it seems to allow for a 'manageable' amount of fraud, but the alternative, 100% reserve banking, would have to be a free market principle, refereed by the participants (not the corruptible State). Unless the participants would have some sort of visibility into a bank's finances to ensure that it is not making multiple claims to any of its assets, there's not much to differentiate such a system from free banking in practice. You have to trust the money managers at some level to put your money in their bank in the first place...
Title: Re: Monetary hijinks
Post by: customdesigned on May 21, 2012, 08:09:49 pm
...A deposit insurance policy (preferably not a government monopoly one), on the other hand, would.
Which sort of makes sense until we realize that an insurance company is a kind of bank with very specific loaning rules (you pay the interests before you cash in the loan, and you can only cash in the loan if X happens). A run on an insurance company might not be orchestratable, but nature's whim can still make it happen.
And of course, insurance companies make investments too.
While your description makes sense, I've always thought of insurance companies as for-profit "charities".   When I make my home insurance payments, I'm not thinking, "will this pay off for me?", but "I'm helping to provide a new home for some unfortunate subscriber that just had theirs burn down!".   Unfortunately, there are rumors that my current disability company is not actually doing that, and I may need a new one.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 21, 2012, 10:06:37 pm
I've always thought of insurance companies as for-profit "charities". 

That is a very interesting thought. I wonder how one that were run with that thought in mind would operate...
Title: Re: Monetary hijinks
Post by: Eddie T on May 23, 2012, 02:44:05 pm
i thought it was understood that we were referring to demand deposits. if one were to try to withdraw a time deposit, one would forfeit not only the interest already accrued but also have to pay a percentage of the principal as penalty.

as for free banking, it is morally reprehensible since it attempts to legitimize the fraudulent practice of fractional reserve banking. free bankers claim that theres nothing wrong with FRB when it is the direct cause of inflation. abolishing a central bank will not end inflation, since paper money is still being printed, only now its in a decentralized manner.  a bank cannot loan out money it does not have. and making agreements with borrowers to be paid back in real money after lending out paper money is just plain fraud.

the difference between 100% reserve banking advocates and free bankers is whether printing money certificates in excess of loanable funds (also referred to as fiduciary media) is fraud. 100% advocates claim it is and that bankers found guilty of it should face criminal charges. FRB is not harmless by any means, and those who sought to profit from it should face the consequences.
Title: Re: Monetary hijinks
Post by: Eddie T on May 23, 2012, 02:53:35 pm
and the Suffolk Bank was not a central bank by any means. a central bank controls a nations money supply and interest rates. it cannot exist without a government-granted monopoly on money. in fact, the Suffolk Bank's role in history proves that a central bank is not needed at all. the only legitimate function of any central bank today is as a clearinghouse. but as the Suffolk Bank shows, a private bank can perform that task. country banks held interest-free deposits at the Suffolk Bank, and in exchange, the Suffolk Bank would redeem their bank notes at par value.
Title: Re: Monetary hijinks
Post by: macsnafu on May 23, 2012, 02:59:35 pm
i thought it was understood that we were referring to demand deposits. if one were to try to withdraw a time deposit, one would forfeit not only the interest already accrued but also have to pay a percentage of the principal as penalty.

as for free banking, it is morally reprehensible since it attempts to legitimize the fraudulent practice of fractional reserve banking. free bankers claim that theres nothing wrong with FRB when it is the direct cause of inflation. abolishing a central bank will not end inflation, since paper money is still being printed, only now its in a decentralized manner.  a bank cannot loan out money it does not have. and making agreements with borrowers to be paid back in real money after lending out paper money is just plain fraud.

the difference between 100% reserve banking advocates and free bankers is whether printing money certificates in excess of loanable funds (also referred to as fiduciary media) is fraud. 100% advocates claim it is and that bankers found guilty of it should face criminal charges. FRB is not harmless by any means, and those who sought to profit from it should face the consequences.

Free banking merely means a free market in banking, not necessarily fractional reserve banking.

But I'll be glad to go into FRB again, as I see it.  Some claim that denying fractional reserve banking denies the freedom of interaction between the bank and banking customer, who should be free to agree to fractional reserve banking deposits.  But this becomes a problem of fraud if fractional reserve money is given to third parties who are not customers of the same bank and have not agreed to FRB money.  However, it is only fraud if the third parties are unaware of it, and are given FRB money as if it were 100% reserve money.  

Free banking can solve this problem easily, because, as each bank is free to issue their own currency or certificates, they can mark them to clearly indicate if they are backed by full reserves or fractional reserves.  The media (newspapers, internet, whatever) can provide information on just how fractional the reserves of differing banks and their currencies are.  

Thus indicated, informed third parties are free to reject any particular currency or discount it by an appropriate amount.  In free banking, there is no "legal tender", so no one is forced to accept any particular currency.  

I don't have a problem with this setup as described at all.  There is no coercion and no fraud involved.  However, given such a situation, I keep asking myself what would be the point of fractional reserves?  If a particular bank operated on 50% reserves, for example, and people consistently discounted that bank's currency by 50%, then what advantage would there be to fractional reserve banking?  it would just be another complication in handling financial transactions.

It seems that the only real value to fractional reserve banking occurs when people are defrauded as to the nature of FRB money, or at best, they hope that enough people wouldn't discount the currency, out of ignorance or carelessness perhaps,  to make it worth while.  

Title: Re: Monetary hijinks
Post by: Scott on May 23, 2012, 04:19:44 pm
Quote
What's interesting is that insurers in Japan, Germany, and France are required by law not to turn anyone down or cancel policies for these reasons, yet they still manage to turn a profit.

Well sure, if they charge higher premiums. And they do.
Title: Re: Monetary hijinks
Post by: macsnafu on May 23, 2012, 04:57:30 pm
Quote
What's interesting is that insurers in Japan, Germany, and France are required by law not to turn anyone down or cancel policies for these reasons, yet they still manage to turn a profit.

Well sure, if they charge higher premiums. And they do.


You are suggesting a cause and effect relationship that isn't proven. First of all, the premiums may not be higher when compared to the standard of living or medical costs of the country in question. Secondly, even if they are, the reason is not necessarily because the government forces them to operate in a nonprofitable manner. There may be other social, economic, or political reasons that wholely or partially account for the higher premiums.

"May be"?  Is that like an "if"?   Does anybody have some solid facts, or are we just guessing as to the reasons they "still manage to turn a profit"?

And if they cannot turn anyone down, then I question whether or not it is really insurance.  Did you ever read that link I provided on how insurance works?
Title: Re: Monetary hijinks
Post by: myrkul999 on May 23, 2012, 04:58:47 pm
Quote
What's interesting is that insurers in Japan, Germany, and France are required by law not to turn anyone down or cancel policies for these reasons, yet they still manage to turn a profit.

Well sure, if they charge higher premiums. And they do.


You are suggesting a cause and effect relationship that isn't proven. First of all, the premiums may not be higher when compared to the standard of living or medical costs of the country in question. Secondly, even if they are, the reason is not necessarily because the government forces them to operate in a nonprofitable manner. There may be other social, economic, or political reasons that wholely or partially account for the higher premiums.

No, those premiums are clearly extortionary, and the companies are coercing their customers into paying them.
Title: Re: Monetary hijinks
Post by: macsnafu on May 23, 2012, 05:07:24 pm
Quote
What's interesting is that insurers in Japan, Germany, and France are required by law not to turn anyone down or cancel policies for these reasons, yet they still manage to turn a profit.

Well sure, if they charge higher premiums. And they do.


You are suggesting a cause and effect relationship that isn't proven. First of all, the premiums may not be higher when compared to the standard of living or medical costs of the country in question. Secondly, even if they are, the reason is not necessarily because the government forces them to operate in a nonprofitable manner. There may be other social, economic, or political reasons that wholely or partially account for the higher premiums.

No, those premiums are clearly extortionary, and the companies are coercing their customers into paying them.

 :D
Title: Re: Monetary hijinks
Post by: myrkul999 on May 23, 2012, 05:18:23 pm
No, those premiums are clearly extortionary, and the companies are coercing their customers into paying them.
You are welcome to your opinion, but until you can back it up with facts, that's all it is.

That whooshing sound? That was the joke going over your head.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 23, 2012, 05:37:18 pm

That whooshing sound? That was the joke going over your head.


My bad. But you forgive me for saying, that you didn't appear to be making a joke, just an ideological statement. An emoticon would have helped.

The same ideological statement that you have made time and again. That was the joke. Your response made the joke even funnier.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 23, 2012, 07:12:15 pm
My statement that insurance agencies would use coercion to force behavior changes was not my personal ideological belief. In fact, I don't believe they do that.

I was using that as an example of how in an AnCap society certain companies could manipulate the free market to create monopolies on power and become de facto states. I based it on YOUR ideology, not one of mine.

Though I would not have been surprised if you had been serious.

You have yet to explain where the coercion and extortion comes in. If they price their policies too high, people will not buy. simple as that.
Title: Re: Monetary hijinks
Post by: macsnafu on May 24, 2012, 08:44:15 am
My statement that insurance agencies would use coercion to force behavior changes was not my personal ideological belief. In fact, I don't believe they do that.

I was using that as an example of how in an AnCap society certain companies could manipulate the free market to create monopolies on power and become de facto states. I based it on YOUR ideology, not one of mine.

Though I would not have been surprised if you had been serious.

You have yet to explain where the coercion and extortion comes in. If they price their policies too high, people will not buy. simple as that.

Exactly--TeamGirl based it on his/her/their impression of our ideology, nothing more.

So, if an insurance company charges higher rates for Porsches than for Toyota Celicas, does that mean that consumers are being forced to buy Celicas instead of Porsches? 
Title: Re: Monetary hijinks
Post by: macsnafu on May 24, 2012, 09:15:28 am

"May be"?  Is that like an "if"?   Does anybody have some solid facts, or are we just guessing as to the reasons they "still manage to turn a profit"?


My only point was they manage to do so despite government restrictions.
Businesses have to make a profit to stay in business--whatever it takes, regardless of the amount of regulation that they are buried under.  No business can stay in business without customers.  Unless the government is going to outright subsidize the business or industry to keep it going.

Quote

I never said they are not allowed to turn anyone down. Please debate honestly. I said they were not allowed to turn down people with pre-existing conditions, and they are not allowed to cancel policies of people who fall critically ill.

From http://en.wikipedia.org/wiki/Insurance :

"Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment."

I don't see anything here that requires refusing to cover people pre-existing conditions or catastrophic illness.

Because that's too vague a definition to be very useful in understanding insurance.  Why does health insurance not cover annual checkups, for example?  Because an annual checkup isn't a "risk" or an unexpected situation.  If someone has a pre-existing condition or illness, then that's a known factor, not a possible risk that the person may or may not encounter. 

Insurance is based upon homogeneous groups with known statistical information.  Say, for example, that there are 1000 males, age 18-24, who want car insurance.  The insurance company gets statistics on males 18-24 and finds that about 36% of them are going to have auto accidents averaging about $2500 per accident.  But statistics on females age 18-24 show that only about 25% of them will have an accident. 

Mixing males and females, age 18-24 would create a heterogenous group, and it would be wrong to charge both of these groups the same rate.  It would especially be wrong to mix these groups with, say males age 40-55, who may have an accident rate of only 18%.  All these groups should be charged different rates appropriate to the level of risk indicated by the statistics.   Doing so ensures that the insurance company isn't going to come up short and have to pay out too much.

But say you have a male, age 22, who is a race car driver, and he wants insurance for his race car.  Well, he wouldn't belong in the general group of males 18-24 but in a special group of race car drives, who are much more likely to have an accident.  If an insurance company is going to cover race car drivers, they need more specialized information and statistics on races and race cars, and would need to charge higher premiums to cover their expected payout costs, if they even decide they want to specialize in race car insurance. 

Similarly, if someone has a known health condition, that puts them in a special category apart from other people.  If this special group has a 75% chance of incurring large or catastrophic costs, then their premiums would necessarily have to be higher than most other people.  Also, as with the race car drivers, more specialized knowledge and statistics would be required to accurately determine their risk level and what the appropriate premiums would be.   

So if insurance companies are not free to turn down people with pre-existing conditions, or cancel the policies of people who become critically ill, you run the risk of insurance companies failing, either because they can't properly calculate the risk for these people, or their risk is 100%, meaning that they aren't actually insuring these people, you are simply using the insurance company as a way to pay for medical costs, perhaps by forcing these costs onto other groups that have lower risks.    That's not insurance, just a plan of redistribution of costs.
Title: Re: Monetary hijinks
Post by: Sieggy on May 24, 2012, 09:56:29 am
But 'canceling the policies of people who become critically ill' is reneging on the contract, unless the contract states that 'you're covered unless we decide it's too expensive to pay for the coverage for which you have contracted'. Which is what the insurance companies actually do, only they're not that open about it. I personally know of several (as in close to a dozen) cases where people were diagnosed with life-threatening ailments, and the insurance companies refused to cover treatment, delayed, stalled, obfuscated, and generally held off until such time as their customer died. But they saved a TON of money doing that!

If the insurance companies behaved in an honest and ethical manner, there would not be as much bad feelings towards them as there is. But when their core mission is not 'providing cost effective coverage to insure the health and well-being of our clients' but rather 'making as much money as possible, regardless of how many clients we let die', you're not running an insurance company, you're running a fraud.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 24, 2012, 10:05:56 am
I can tolerate insurance agencies refusing to cover preexisting conditions, or denying coverage to people who have a 100% risk of falling ill, but canceling someone's insurance when they get sick is a serious dick move. If there's a limit on the payout amount, that's one thing, but canceling service as soon as someone gets sick just seems like a way to get out of the responsibility of fulfilling their contract.

If the insurance companies behaved in an honest and ethical manner, there would not be as much bad feelings towards them as there is. But when their core mission is not 'providing cost effective coverage to insure the health and well-being of our clients' but rather 'making as much money as possible, regardless of how many clients we let die', you're not running an insurance company, you're running a fraud.

Hey look, we agree on something! Furthermore, fraudulent agencies like that should be held liable for their fraud, preferably the CEOs and other policy makers individually, as well as the company itself, jointly. And without the liability limitations of the corporate person.
Title: Re: Monetary hijinks
Post by: macsnafu on May 24, 2012, 11:34:09 am
But 'canceling the policies of people who become critically ill' is reneging on the contract, unless the contract states that 'you're covered unless we decide it's too expensive to pay for the coverage for which you have contracted'. Which is what the insurance companies actually do, only they're not that open about it. I personally know of several (as in close to a dozen) cases where people were diagnosed with life-threatening ailments, and the insurance companies refused to cover treatment, delayed, stalled, obfuscated, and generally held off until such time as their customer died. But they saved a TON of money doing that!

If the insurance companies behaved in an honest and ethical manner, there would not be as much bad feelings towards them as there is. But when their core mission is not 'providing cost effective coverage to insure the health and well-being of our clients' but rather 'making as much money as possible, regardless of how many clients we let die', you're not running an insurance company, you're running a fraud.

You're quite right.  In trying to explain insurance, I overstated my case. 
Title: Re: Monetary hijinks
Post by: Andreas on May 24, 2012, 04:17:06 pm
...A deposit insurance policy (preferably not a government monopoly one), on the other hand, would.
Which sort of makes sense until we realize that an insurance company is a kind of bank with very specific loaning rules (you pay the interests before you cash in the loan, and you can only cash in the loan if X happens). A run on an insurance company might not be orchestratable, but nature's whim can still make it happen.
And of course, insurance companies make investments too.
While your description makes sense, I've always thought of insurance companies as for-profit "charities".   When I make my home insurance payments, I'm not thinking, "will this pay off for me?", but "I'm helping to provide a new home for some unfortunate subscriber that just had theirs burn down!".   Unfortunately, there are rumors that my current disability company is not actually doing that, and I may need a new one.
It all depends on the kind of policy, most of them can be most aptly described as limited forms of lottery. You place a bet that your house will burn down, be blown over by a storm, be stomped on by a radioactive giant lizard, etc.
And if you win, you get some money with which to fix it. If nothing destroys your house, well, too bad - waste of money.
The Insurance company is exactly like your bookie, calculating the odds and making sure the House comes out on top.

It's hard for me to picture it the way you do, but then, maybe I'm just a cynic ;D
The charity angle doesn't work for me, because they only help out people who have a ticket in the lottery ;)
Title: Re: Monetary hijinks
Post by: myrkul999 on May 24, 2012, 06:22:21 pm
It all depends on the kind of policy, most of them can be most aptly described as limited forms of lottery.

I see it sort of the other way 'round... the insurance agency is gambling that you won't cash in before your premiums have covered the cost of your payout. Which is why higher risk = higher premiums.
Title: Re: Monetary hijinks
Post by: Arondell on May 24, 2012, 06:58:30 pm

"May be"?  Is that like an "if"?   Does anybody have some solid facts, or are we just guessing as to the reasons they "still manage to turn a profit"?


My only point was they manage to do so despite government restrictions.
Businesses have to make a profit to stay in business--whatever it takes, regardless of the amount of regulation that they are buried under.  No business can stay in business without customers.  Unless the government is going to outright subsidize the business or industry to keep it going.

Quote

I never said they are not allowed to turn anyone down. Please debate honestly. I said they were not allowed to turn down people with pre-existing conditions, and they are not allowed to cancel policies of people who fall critically ill.

From http://en.wikipedia.org/wiki/Insurance :

"Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment."

I don't see anything here that requires refusing to cover people pre-existing conditions or catastrophic illness.

Because that's too vague a definition to be very useful in understanding insurance.  Why does health insurance not cover annual checkups, for example?  Because an annual checkup isn't a "risk" or an unexpected situation.  If someone has a pre-existing condition or illness, then that's a known factor, not a possible risk that the person may or may not encounter. 

De-lurking here.  While not jumping into the debate as such I thought I would mention my otherwise high deductible health insurance covers 100% of the cost of annual checkups.(Also vaccinations.)  I always figured the point was because its often cheaper to deal with potential problems if they are caught early.  I don't really think it affects your overall argument but if your going to use a specific example it should be pointed out that the example is not universally true.
Title: Re: Monetary hijinks
Post by: myrkul999 on May 24, 2012, 08:29:47 pm
De-lurking here.  While not jumping into the debate as such I thought I would mention my otherwise high deductible health insurance covers 100% of the cost of annual checkups.(Also vaccinations.)  I always figured the point was because its often cheaper to deal with potential problems if they are caught early.  I don't really think it affects your overall argument but if your going to use a specific example it should be pointed out that the example is not universally true.

Fine point, here. Preventative medicine is often much cheaper than curative. This also illustrates that different agencies will have different policies, and each person can choose the one that suits them best.
Title: Re: Monetary hijinks
Post by: ex-Gooserider on May 24, 2012, 08:54:29 pm
If you have insurance that covers checkups or other "routine" costs, you can safely bet that the "wholesale costs" of those services is included in your premiums.  Yes, it may in theory lower costs by catching things early, but I've never seen convincing evidence that the payback is enough to cover the exam costs in most cases...  (there are exceptions for certain specific treatments / illnesses - many of which I have to worry about as a paraplegic - UTI's are expensive, single use disposable catheter supplies reduce UTI's enough to make it less expensive to supply them than to have patients attempt to clean and reuse them...  Likewise an expensive seating solution that prevents a pressure sore, and thinks of that sort.)

One of the reasons for extremely high insurance costs in the US is that current policies are required to provide for a great many services that fall in the "routine" category, or are high cost 'discretionary' (as in non-life essential) services (i.e. 'fertility assistance') all of which have their costs included in the premiums we all pay.  

In a few cases, it is possible to get a high deductible "catastrophic" policy that ONLY pays for serious illnesses / accidents, and not any of the routine stuff, or costs of things like fertility treatments and other 'non-life critical' services - and those policies are MUCH less expensive

Presumably an AnCap society would have a variety of insurance options available to consumers, ranging from something like the "everything" policies of today, to the previously mentioned 'catastrophic' policies.  However since people purchasing the cheap policies wouldn't be part of the "pool" contributing to the "everything policies" the premiums for the full coverage stuff would be higher, but this isn't all that bad...

Insurance companies presumably WOULD also end up doing a certain amount of "social engineering" via premium costs, but this is something I would see as less objectionable than the gov't attempting to force it on us...  It is pretty obvious that certain activities increase or decrease one's risk of accidents / illnesses, and I don't think it's unreasonable for an insurance co. to have surcharges or discounts for those things....  The market will keep those appropriate, since companies that charge unreasonable surcharges can be undercut by their competition, or those giving oversized discounts will lose money...  However if your insurance company charges extra if you ______ then you might or might not want to keep doing it, depending on if you find the pleasures are worth the surcharge or not...  This kind of voluntary 'social engineering' doesn't seem at all unreasonable...

ex-Gooserider
Title: Re: Monetary hijinks
Post by: myrkul999 on May 24, 2012, 09:27:41 pm
Once insurance starts covering non-emergency things, it's a pretty predictable feedback pattern that causes the huge insurance and medical costs:


Now, there's a second loop with the hospitals/doctors, but it's basically the same. Doctors (naturally) want to get more money from the procedure, and increase their prices. The consumers never see this, except on the statement to the insurance, so the doctors never see the loss signal from too-high prices. Thus, the prices keep rising, making insurance vitally necessary to get these procedures (and exacerbating the increased payout/premium cycle), perpetuating the cycle.

There are many many more factors, but that's the root problem.
Title: Re: Monetary hijinks
Post by: Scott on May 25, 2012, 04:38:09 pm
There's another problem with the 3rd-party payment system which shows up at the micro level. For example:

At the local clinic we use, there are two physicians and two nurses. PLUS a receptionist and THREE clerks to keep track of all the insurance billing, and making damn sure every 'i' is dotted and 't' crossed on the Medicaid/Medicare forms, as penalties for even honest errors are draconian. This creates a "cost wedge" between what the clinic must charge for services and what the physicians and nurses can earn from their practice.
Title: Re: Monetary hijinks
Post by: Andreas on May 27, 2012, 01:00:53 pm
Hey Scott, do you remember the air-purification question you asked me?
I suggested a sort of buy-in-society, where the arriving immigrants to the space station are required to buy a share (paying in needed imports, ideally) of the station as a whole. This ensures a couple of things; first of all, since they buy a share, the residents will not be tempted to sell out the immigrants by allowing more immigrants in than the society can absorb (letting them fall to poverty levels and then flushing them out the airlock, for instance). The share ensures that the population will grow in step with the economy and capacity, else the present residents suffer (as all shares are equal).
It also ensures that the negligible costs of air and water purification (and heat venting, which might be a greater concern than heating) can be safely absorbed by the dividends on the share.
That same system could form the basis of very cheap "insurance", since the dividends on the share can form the basis of an emergency loan. Sure, eventually a very unlucky person could suffer such horrendous misfortunes that their share can't carry the load, but if that's not a call for charity, what is?


It still doesn't solve the childbirth aspect, so it needs specifying further, but it does do interesting things for a lot of those hard questions. It'd be a shareholder/cooperative/capitalist system.
Title: Re: Monetary hijinks
Post by: Arondell on May 27, 2012, 07:19:25 pm
At the local clinic we use, there are two physicians and two nurses. PLUS a receptionist and THREE clerks to keep track of all the insurance billing, and making damn sure every 'i' is dotted and 't' crossed on the Medicaid/Medicare forms, as penalties for even honest errors are draconian. This creates a "cost wedge" between what the clinic must charge for services and what the physicians and nurses can earn from their practice.

Years ago I saw a youtube video of a doctor giving a presentation about why he decided not to accept any insurance plans at the clinic he ran.

His reasons were two fold.  One reason was that he felt that all the contracts the insurance carriers required him to agree too were unethical.  I don't remember all the details but the one that really bugged him was that the insurance carriers *required* that he charge them less then people that came to his office and paid out of pocket.

The other was that because his office didn't have to keep track of the administrative details involved with accepting various insurance plans he saved a great deal of money which he passed on to his patients.  He also had a very clear price list of every service he provided posted in his office.  Despite most of his colleagues saying he was nuts before he opened he turned out to be quite successful.
Title: Re: Monetary hijinks
Post by: customdesigned on May 28, 2012, 10:26:03 am
Years ago I saw a youtube video of a doctor giving a presentation about why he decided not to accept any insurance plans at the clinic he ran.
Our high-deductible insurance covers use of such doctors with no problems.  They two deductibles, both the same size, one for "in plan" and the other for "out of plan" expenses.  So there would be no problem using such enlightened out of plan doctors exclusively - except that it is hard/impossible to find hospitals of that mindset should something major come up.
Title: Re: Monetary hijinks
Post by: Scott on May 28, 2012, 10:35:31 am
I read another story about a year ago about a physician in New York who ran a "subscription" practice. That is, each patient would pay an annual subscription fee of $100, and would then receive general services (no specialties, and not including lab work that had to be done out-of-house) at no charge. The insurance companies got wind of this and were trying to shut him down for running an unregulated insurance service. I never heard how that turned out.

Title: Re: Monetary hijinks
Post by: Andreas on May 29, 2012, 01:45:26 am
Let's take it one step further, with the subscription starting at the med-school level (perhaps indexed, to cover loss to potential drop-outs or tragedies), and we take "private doctor" to the logical conclusion. That would achieve social mobility too, making high-paying jobs more accessible to those without means to individually pursue the educations required.
Title: Re: Monetary hijinks
Post by: ex-Gooserider on May 29, 2012, 08:51:18 pm
Supposedly there have been cases where "underserved" communities have attempted to get better medical care by contracting with medical students to pay their costs in exchange for a certain length of time working as the town Doctor (presumably at low cost...)

Seems like a quite reasonable idea to me, but my understanding is that the gov't has ruled that such agreements aren't enforceable...

ex-Gooserider
Title: Re: Monetary hijinks
Post by: Andreas on May 30, 2012, 12:55:32 am
Supposedly there have been cases where "underserved" communities have attempted to get better medical care by contracting with medical students to pay their costs in exchange for a certain length of time working as the town Doctor (presumably at low cost...)

Seems like a quite reasonable idea to me, but my understanding is that the gov't has ruled that such agreements aren't enforceable...

ex-Gooserider

Well, the government would say that, right?
I figure the easiest and fairest way to do it would be to set up a formal debt arrangement, a debt that can't be called in unless certain conditions are met.
Title: Re: Monetary hijinks
Post by: Warren on June 07, 2012, 04:37:22 pm
i thought it was understood that we were referring to demand deposits. if one were to try to withdraw a time deposit, one would forfeit not only the interest already accrued but also have to pay a percentage of the principal as penalty.

as for free banking, it is morally reprehensible since it attempts to legitimize the fraudulent practice of fractional reserve banking. free bankers claim that theres nothing wrong with FRB when it is the direct cause of inflation. abolishing a central bank will not end inflation, since paper money is still being printed, only now its in a decentralized manner.  a bank cannot loan out money it does not have. and making agreements with borrowers to be paid back in real money after lending out paper money is just plain fraud.

the difference between 100% reserve banking advocates and free bankers is whether printing money certificates in excess of loanable funds (also referred to as fiduciary media) is fraud. 100% advocates claim it is and that bankers found guilty of it should face criminal charges. FRB is not harmless by any means, and those who sought to profit from it should face the consequences.

There is quite a lot of confusion to clear up. If you look at the history of free banking in Scotland and Canada you will notice a decide lack of of panics and runs and that's because the system worked very well and the customers knew there was very little risk of losing their money. Below I talk of the era from @1700 to 1844 in Scotland.

Firstly, it is not FRB. Historically the banknotes that were issued were as loans that were backed by the collateral of the person getting the loan. In other wrods a person had wealth but was not liquid and did not want to sell his stuff so he took out a loan on the value. Standard stuff. Then the bank would issue him notes for that amount. These notes were general claims on the asset of the bank not for gold specifically.

Secondly, the banks discovered that they could hold less than 2% of their assets as specie (one bank was as low as 1/2%) because there was so little demand for coins. Instead they purchased interest-bearing securities such as stocks, bonds, annuities, and bills of exchange. This could be easily liquidated if there was a sudden need for gold. Why should the bank forgo the interest they could earn and pay the storage costs for gold that most people did not want? The 100% reservists have a fetish for a lousy business model and they demand everyone adhere to it.

Thirdly, deposits were very safe.   Very little money was lost, one study covering 40 years of activity  found losses  averaged around a 1000 Pounds a year total over a population of some 3 million which compared to the gain from having an interest bearing account is virtually no risk at all for individual customers.

The deposit were safe because of the competition between banks. Once every sum of days representatives of the banks would meet and exchange notes at a clearing house. Any bank that had notes in excess of the clearing had to pay gold to retire them. And since the gold reserves were so little banks had to be very careful because if they blew off their gold their securities were next and if those went then it was the actual assets of the stockholders.

In those days the banks were unlimited liability joint-stock companies. The investors were ultimately on the hook  for ALL losses. This tends to focus a person's mind on proper business practices.   There were bank failures of course notably the Ayr and a few others but this was not a problem for the man on the street.

So you had multiple layers of protection:
1. Gold
2. Securities
3. Loan Portfolio could be sold off
4. Physical assets of the bank
5. Investors personal wealth
6. The other banks...

After a failed bank exhausted steps 1-5 the other banks would step in and buy up the outstanding notes at face value.  

Does that sound like a fraudulent system to you?

Fourthly, it was not inflationary. Well-run banks (and most of them were) only lent on good collateral which meant in the case of a default the collateral would be sold thus providing the means to retire the outstanding notes. Also as businesses created new products and jobs there was both more new things to buy and people with money to buy them thus the new money was spread out amongst more people and things.  So per capita it (mostly) stayed level. http://www.bankofengland.co.uk/publications/Documents/speeches/1999/speech44.pdf That link is for the UK in general but Scotland is included by default, obviously.

Fifthly, fiduciary media is a cost saving device. Real-money coins can be altered and thus lose value. This introduces non-uniformity and that makes transactions just slightly more difficult. Second they are heavy, don't fold, and are had to make change for. It's like having nothing but $20s and $50s in your wallet and no one has change. Sure you make smaller coins but tiny coins have their own problems. People used to have to run a tab and then pay when it got to a point that matched the lowest coin. In another area currency was so lacking that a mine owner would gather groups of workers together and hand over a single gold Sovereign  and then the workers went to a pub and drank enough that the pub owner could make enough change for everyone to get paid.

With fiduciary media you can design a currency architecture where it is possible to have notes and base coins that cover every level of possible transactions.

Sixthly, criminal charges? Really? How about you bank the way you want to and I'll bank the way I want to?


Other gold standard thoughts:

You can have a GS without any gold in the official system. Just peg your currency's value to gold at some rate and keep it there.

The issuer of currency need not be a redeemer of it. As long as there are others in the area who will exchange gold for paper you have redeemability.

None of the above is to be taken that I am opposed to real coins circulating as money. I rather like the idea.  

Nor am I saying  that people must reject 100% reserve banking. To each his own and all that. Just know that 100% liquidity does not imply solvency just as 2% liquidity does not imply insolvency.  And it's solvency that counts, not how much gold is sitting in the vault.

Title: Re: Monetary hijinks
Post by: Andreas on June 08, 2012, 02:43:04 am
I don't think it's wise to claim that speculators=market compensation.
Just as likely, if not moreso, is that speculators are taking advantage of government involvement; speculators do not necessarily serve a good purpose.
Like all the nobel prize winning bozos doing Gearing, thinking they can walk on water until, oops, turns out it was a long walk off a short pier.
If all the money bet on quick speculation wins would be in stead spent on long term investments, the whole up-up-and-crash theme would be a thing of the past.

[edited:+long term]
Title: Re: Monetary hijinks
Post by: macsnafu on June 08, 2012, 10:34:29 am
i thought it was understood that we were referring to demand deposits. if one were to try to withdraw a time deposit, one would forfeit not only the interest already accrued but also have to pay a percentage of the principal as penalty.

as for free banking, it is morally reprehensible since it attempts to legitimize the fraudulent practice of fractional reserve banking. free bankers claim that theres nothing wrong with FRB when it is the direct cause of inflation. abolishing a central bank will not end inflation, since paper money is still being printed, only now its in a decentralized manner.  a bank cannot loan out money it does not have. and making agreements with borrowers to be paid back in real money after lending out paper money is just plain fraud.

the difference between 100% reserve banking advocates and free bankers is whether printing money certificates in excess of loanable funds (also referred to as fiduciary media) is fraud. 100% advocates claim it is and that bankers found guilty of it should face criminal charges. FRB is not harmless by any means, and those who sought to profit from it should face the consequences.

There is quite a lot of confusion to clear up. If you look at the history of free banking in Scotland and Canada you will notice a decide lack of of panics and runs and that's because the system worked very well and the customers knew there was very little risk of losing their money. Below I talk of the era from @1700 to 1844 in Scotland.

Firstly, it is not FRB. Historically the banknotes that were issued were as loans that were backed by the collateral of the person getting the loan. In other wrods a person had wealth but was not liquid and did not want to sell his stuff so he took out a loan on the value. Standard stuff. Then the bank would issue him notes for that amount. These notes were general claims on the asset of the bank not for gold specifically.

Secondly, the banks discovered that they could hold less than 2% of their assets as specie (one bank was as low as 1/2%) because there was so little demand for coins. Instead they purchased interest-bearing securities such as stocks, bonds, annuities, and bills of exchange. This could be easily liquidated if there was a sudden need for gold. Why should the bank forgo the interest they could earn and pay the storage costs for gold that most people did not want? The 100% reservists have a fetish for a lousy business model and they demand everyone adhere to it.

...

Nor am I saying  that people must reject 100% reserve banking. To each his own and all that. Just know that 100% liquidity does not imply solvency just as 2% liquidity does not imply insolvency.  And it's solvency that counts, not how much gold is sitting in the vault.

Heh.  Are you clearing up confusion, or adding to the confusion? 100% reserves only applies to demand deposit accounts.  Loans such as you describe would technically not be demand deposits, as the user is getting cash by putting up collateral, not depositing cash, although the collateral offered is, of course, the functional reserve for such a loan.

Also, holding the reserves in a different form shouldn't be a problem as long as it is still easily and quickly convertible for payouts--the problem with fractional reserve banking is that the bank loans it out, they aren't holding anything in any form for the depositor.

There's no reason a bank can't have 100% reserves for demand deposits, and also have time deposits that they loan out. The time deposits, of course, are specifically for loaning out, and thus don't require reserves.

Finally, as I already noted in a previous post, there's a relatively simple way for fractional reserve banking to avoid being fraudulent.  But you aren't talking about fractional reserve banking, so what does that matter in relation to your post?
Title: Re: Monetary hijinks
Post by: Warren on June 08, 2012, 02:54:43 pm
Time deposits and demand deposits are immaterial distinctions.

Mechanically, the clearing of notes is what kept banks in check. It did not matter what the reserve was for demand deposits because if a bank over issued notes they would be punished via clearing so they were incentivized to not over issue because they did not want the the public to see them losing first gold and then capital. So  the clearing system automatically did everything that the 100%GR-ists want gold to do and it allowed the banks to gain interest and be healthier,  be a better investment and attract others to the trade thus increasing the utility of banking and making it available to more people  at a lower cost or increased returns.

Prior to the creation of federal deposit insurance in the US banks would advertise how much capital they were backed with. The more in relation to deposits the better, gold did not play a large part.

And it wouldn't in a free-market system. It's total assets, not total gold that matters.


A few more broader questions:


There was no law in the US, Canada, Scotland/UK, or anywhere else that prevented the establishing of 100% banks so why were they not founded? If a 100%GR was best why didn't banks based on it out compete the 2%GR(+98% capital) banks?

Why does it even matter? For people claiming to be individualists 100%GR folks spend a lot of time treating banking as a collectivist notion in the sense that we all have to do the same thing or else; woe be to us, the society is a collapsin"!

If a person reading this is a 100%GR advocate what are you willing to do if you found a bank that was not run along those lines? What if you could not find a single customer of said bank that was dissatisfied, what would be your plan for dealing with the bank, it's owners, employees and customers?


Title: Re: Monetary hijinks
Post by: myrkul999 on June 08, 2012, 03:21:09 pm
All your questions can be answered here:

https://www.freelakotabank.com/index.asp
Title: Re: Monetary hijinks
Post by: macsnafu on June 08, 2012, 04:26:41 pm
Time deposits and demand deposits are immaterial distinctions.

Time deposits are specifically for loaning out, while demand deposits are specifically for the depositor's convenience.  If that's not an important distinction, I don't know what is.
Quote
If a person reading this is a 100%GR advocate what are you willing to do if you found a bank that was not run along those lines? What if you could not find a single customer of said bank that was dissatisfied, what would be your plan for dealing with the bank, it's owners, employees and customers?

I'm not a 100% gold reserve advocate, merely a 100% reserve advocate.  However, as I already said, there's no reason a bank can't have 100% reserves for demand deposits and still have time deposits, which of course would not have any reserves, as they are loaned out.  Or you could have banks that focus on merely one or the other, although I think that less likely.
Title: Re: Monetary hijinks
Post by: Warren on June 08, 2012, 04:50:59 pm
All your questions can be answered here:

https://www.freelakotabank.com/index.asp


There's one. Cool, though I wouldn't say it answered all of my questions.


Quote
Time deposits are specifically for loaning out, while demand deposits are specifically for the depositor's convenience.  If that's not an important distinction, I don't know what is.

What I meant was there is no difference if the backing capital is allocated or unallocated. If there is enough that's what matters.

Is your position that a bank should carry all those  demand deposits gold reserves even though they know from experience that 98% of them will not be called for and that they should weaken themselves by both paying the costs of the storage and giving up the interest  they could earn by investing in capital?

Title: Re: Monetary hijinks
Post by: Warren on June 10, 2012, 04:59:02 pm

Thirdly, deposits were very safe.   Very little money was lost, one study covering 40 years of activity  found losses  averaged around a 1000 Pounds a year total over a population of some 3 million which compared to the gain from having an interest bearing account is virtually no risk at all for individual customers.


This is incorrect. According to page 32 of http://analyseeconomique.files.wordpress.com/2011/07/kevin-dowd-the-experience-of-free-banking.pdf it was actually 32,000 pounds over a 100 years. So about  300 pounds a year divided by 3 million people. Which is what, one one-thousandth of a pound?  

Also in that document on page 5 it points out that in the time that Free Banking existed in Scotland their average income more than doubled and the almost  caught up to England despite not having the advantages that England enjoyed.

So...
No depositor risk,
No bank runs or panics,
A huge increase in the standard of living,
No inflation
Multiple generations worth of stable money

Would a bank run on Rothbardian principles have done any better?
Title: Re: Monetary hijinks
Post by: sam on June 11, 2012, 02:31:04 am
I'll help you out on that one small point.  A gold standard does not
prevent inflation when you allow unsecured debt.

Here is the evolution:

1) Carrying gold around is inconvenient, so people bring it to a bank
   where it is stored in a vault.  They get a piece of paper proving
   their ownership of X units of gold in the vault.

2) People accept the pieces of paper as payment, since going to the
   vault to retrieve the actual gold is inconvienient.

3) The bank will lend gold at interest, offering either actual gold
   or the paper.  The paper is far more convenient.

4) The bank realizes that they can loan gold that belongs to depositors.
   People rarely come for the real gold, so no one is the wiser.
   This practice doubles the amount of paper representing gold - inflation.

You left out step five:

There is a run on the bank.  The bankers tell the government that people running on the bank is very bad, neglecting to say that bankers being unable to meet a run on the bank is very bad.  The government then excuses the banks from meeting their financial obligations.

I think if runs were followed by horsewhippings, bankers would usually keep a substantial fraction in actual gold.

Title: Re: Monetary hijinks
Post by: myrkul999 on June 11, 2012, 03:53:01 am
I think if runs were followed by horsewhippings, bankers would usually keep a substantial fraction in actual gold.

Not a bad idea, but simple restitution, if fully executed, would be sufficient. After the first bank president spent the rest of his days as a branch manager to pay off his debt, the rest should march in line.
Title: Re: Monetary hijinks
Post by: Andreas on June 11, 2012, 06:00:41 am
These are bankers, not einsteins... so after the first ten thousand bank presidents have spent the rest of their lives as branch managers to pay off the debts, the flow may begin to slow.
People become bankers in the first place because they enjoy playing with Other People's Money... OPM is a hard habit to break.
Title: Re: Monetary hijinks
Post by: macsnafu on June 11, 2012, 10:42:34 am


Quote
Time deposits are specifically for loaning out, while demand deposits are specifically for the depositor's convenience.  If that's not an important distinction, I don't know what is.

What I meant was there is no difference if the backing capital is allocated or unallocated. If there is enough that's what matters.

Is your position that a bank should carry all those  demand deposits gold reserves even though they know from experience that 98% of them will not be called for and that they should weaken themselves by both paying the costs of the storage and giving up the interest  they could earn by investing in capital?

If the money used is gold, and I deposit gold with the bank into a demand deposit account, then yes, I expect the bank to actually store the gold somewhere for me, and that I can go to the bank and withdraw the gold at anytime, if I so choose, less whatever I've spent via checks or gold certificates. 

Of course, since a demand deposit account is a convenience to me, then I expect to pay a fee relative to the costs of storage, and not to have "free checking".  If I want to earn interest on my money, I wouldn't put it in a demand deposit account, but into a time deposit account, instead, knowing full well that there would be limitations on my being able to access my money, as it would not be available "on demand". 

A full reserve is not weakening the bank, but keeping it strong.  With a full reserve, it's hard to imagine why there would be a bank run in the first place, but if there were, then there's no problem with them providing the demand depositors with their money.

There are different types of fraud possible with banks.  One would be claiming that depositors' money is available "on demand" while in fact some of it has been loaned out to earn interest.

But, as I've already noted, your historical example about the farmers were loans backed by collateral, not actual demand deposits.  That's a part of banking that is, or should be, entirely unrelated to demand deposits or reserves, as the money loaned out should come from time deposits, not from demand deposits or fiat money printed out of thin air.  And if gold is used as money, would the bank be loaning out actual gold?  Or would they more likely be loaning out gold certficates?  Another form of fraud would be loaning out gold certificates redeemable for a certain amount of gold, while the bank doesn't actually have the gold that the certificates represent.

It is the relationship between how much people are willing to save and put into time deposits, versus how much people are wanting to borrow money, that creates the market rate of interest. 
Title: Re: Monetary hijinks
Post by: myrkul999 on June 11, 2012, 11:17:20 am
These are bankers, not einsteins... so after the first ten thousand bank presidents have spent the rest of their lives as branch managers to pay off the debts, the flow may begin to slow.
People become bankers in the first place because they enjoy playing with Other People's Money... OPM is a hard habit to break.

Well, as long as the people who were harmed get their money back, it really doesn't matter if it's 10, 100, or 10,000. Play with other people's money as much as you want, so long as you pay them back.
Title: Re: Monetary hijinks
Post by: Warren on June 11, 2012, 03:39:56 pm
Quote
A full reserve is not weakening the bank, but keeping it strong.  With a full reserve, it's hard to imagine why there would be a bank run in the first place, but if there were, then there's no problem with them providing the demand depositors with their money.

Can you point me to where actual runs were a problem under free banking? If there were no such issues then how could 100% be a palliative? 


Quote
These are bankers, not einsteins... so after the first ten thousand bank presidents have spent the rest of their lives as branch managers to pay off the debts, the flow may begin to slow.
People become bankers in the first place because they enjoy playing with Other People's Money... OPM is a hard habit to break.

And now you're using the exact kind of rhetoric that we would find coming from an Occupier. Businessmen bad! Must regulate! Even though the evidence does not support the assertion of wrongdoing being a problem.

No one here is engaging with the actual history.

It's like you say: Theory theory theory theory theory.

I come in and say: History history evidence history.

And you respond with: Theory theory horsewhipping theory!


I know most of you are free-marketeers and so should realize that markets clear, not just for labor and products but for incompetent, or corrupt businesses as well. Those sorts of operations get filtered out as they provide no value to people. If fractional gold reserve banking was a liability it would have faded away. Instead, millions of people seeking their own best interest saw it as a valuable tool to advance their position in life. So to deny FGRB is to deny the legitimacy of their choices and to treat them as imbeciles. Were they? Are you an elitist that knows what's better for the little man then they themselves do?

Also, can someone point out all the 100% reserve banks that existed alongside the FGR banks? Scotland had 29 FGRBs at one point but how many 100% banks were there? Canada also had a load of note issuing banks, but how many 100% banks?  And if you can't find them can you explain why they didn't exist? It's not like they were illegal.
Title: Re: Monetary hijinks
Post by: macsnafu on June 11, 2012, 05:33:55 pm
Quote
A full reserve is not weakening the bank, but keeping it strong.  With a full reserve, it's hard to imagine why there would be a bank run in the first place, but if there were, then there's no problem with them providing the demand depositors with their money.

Can you point me to where actual runs were a problem under free banking? If there were no such issues then how could 100% be a palliative? 
....

I know most of you are free-marketeers and so should realize that markets clear, not just for labor and products but for incompetent, or corrupt businesses as well. Those sorts of operations get filtered out as they provide no value to people. If fractional gold reserve banking was a liability it would have faded away. Instead, millions of people seeking their own best interest saw it as a valuable tool to advance their position in life. So to deny FGRB is to deny the legitimacy of their choices and to treat them as imbeciles. Were they? Are you an elitist that knows what's better for the little man then they themselves do?

Free banking, per Wikipedia
Quote
Free banking refers to a monetary arrangement in which banks are subject to no special regulations beyond those applicable to most enterprises, and in which they also are free to issue their own paper currency (banknotes). In a free banking system, market forces control the supply of total quantity of banknotes and deposits that can be supported by any given stock of cash reserves, where such reserves consist either of a scarce commodity (such as gold) or of an artificially limited stock of "fiat" money issued by a central bank. In the strictest versions of free banking, however, there either is no role at all for a central bank, or the supply of central bank money is supposed to be permanently "frozen." There is, therefore, no agency capable of serving as a "lender of last resort" in the usually understood sense of the term. Nor is there any government insurance of banknotes or bank deposit accounts.

So my first comment is that I don't see any particular conflict with free banking and full reserves.  Again, I don't see where you specifically provided examples of fractional reserve banking under demand deposit accounts--did I miss those examples?

And perhaps a better question is why, as government regulation of banks and central banking grew, banks almost completely became fractional reserve banks? If FRB banks don't have problems, then why greater regulations and central banking?  Doesn't the Fed control how much reserves banks have to have? Isn't part of the problem that led to the Great Depression the fact that the Fed forced banks to maintain lower reserves than they had at the time? 

In short, I don't think there's as much conflict between us as there is confusion about the semantics related to banking.
Title: Re: Monetary hijinks
Post by: Andreas on June 11, 2012, 11:27:44 pm
Warren: Now you're engaging in the exact kind of rhetoric one can expect from a corrupt banker "Oooh, Occupiers Bad".
Are you saying that people enter into the Government of Money for other reasons that 1) Enriching themselves and 2) Getting to play with OPM?

Do you claim that there are high-ranking bankers out there that have nothing but a genuine concern for ensuring that their clients are given the best monetary service possible?

That said, I agree that the wrong kind of regulations have been in effect. The brokers' employers ought to be fixing the problem; short-term incentives for long-term advice. Let the brokers receive benefits in the form of the stuff they actually sell to others; bound for a period relative to the kind of commodity involved.
Title: Re: Monetary hijinks
Post by: Warren on June 11, 2012, 11:34:24 pm
If there is disagreement it's tertiary, not to the substance of the idea.  Most of this isn't aimed at you but rather is for general consumption.

First, the Wiki article mentions a lack of lender of last resort mechanism. The author(s) of the article fail to realize that free banking needs no such creature. But its Wikipedia, so I'm not going to get worked up over it.

Second, I do not know the day-to-day operational details of these banks so I do not know  exactly how they treated deposits but given that at the end of the era gold reserves were less than 2% on average I'd have to assume that deposits were not fully backed yet it was not a problem. Which means that for examples I would just say all banks in Scotland or Canada. (Though there were some early note issuing banks that did not take deposits. I don't which ones they were or if that persisted throughout the era.)

Third, banks started as FGR banks only their reserves were higher in the beginning.  It was the regulations that made the banks less capable and prone to error. Not that the banks were having problems and needed to be saved from themselves.

And why central banking and regulations and the end of free banking? This is government we're talking about. Why does it do anything?

In the PDF I linked to starting on page 40 there is a chart that lists why free banking ended in the various places it was. "Crisis" gets a few entries but it's mostly "theory" and "seigniorage" get the bulk. So in the former the politicians got talked into something and in the latter they wanted to be able to grab the profits from printing and spending money into the economy.

In short it wasn't a failure of free banking but the usual idiocy and corruption that are  the hallmarks of government that led to its demise.
Title: Re: Monetary hijinks
Post by: Warren on June 11, 2012, 11:43:41 pm
Warren: Now you're engaging in the exact kind of rhetoric one can expect from a corrupt banker "Oooh, Occupiers Bad".
Are you saying that people enter into the Government of Money for other reasons that 1) Enriching themselves and 2) Getting to play with OPM?

Do you claim that there are high-ranking bankers out there that have nothing but a genuine concern for ensuring that their clients are given the best monetary service possible?

I claim no knowledge of the motivations of today's bankers.

Why do people enter into business? To enrich themselves.

If bankers did not have a government that they could use to distort the market and seek rents and so forth they would be (and were) an inoffensive bunch. Just like any other business.

In the absence of government banking didn't produce returns that were outside the normal band for businesses.

How is a banker using OPM  as the source of loans any different from an entrepreneur using OPM to start a business? They both want to enrich themselves.

You do realize that without banking (or the general ability to pool money together) the modern world could not exist, right?
Title: Re: Monetary hijinks
Post by: Andreas on June 12, 2012, 03:11:42 pm
You think banks will forget that they're the government of money once the government of people goes away?
Enriching themselves is ok, that I can understand, but investment bankers have gotten addicted to playing with the source.
Much like the Music Industry is strangling creativity by trying to rig up the tastes of the audience and to create their own "stars", fiddling with the source of their domain.
Investment banking is far from the inconspicuous "money in, money out" simplicity you make it out to be, and governments have little to do with it.
Yes, the distortion that is the publicly traded corporation was part of how it got this crazy, but it's not driven by government anymore.
I don't see how they can be forced to stop manipulating the market, and they will always be able to try it, since they have control and government over such a large amount of the primary market signal-hormone - i.e. money.

They have power, and they will abuse it, now that they know how.
Title: Re: Monetary hijinks
Post by: macsnafu on June 12, 2012, 03:41:45 pm
You think banks will forget that they're the government of money once the government of people goes away?

Um, if you have free banking, then no, banks are not the "government of money", because no bank would have an exclusive monopoly on the production of money.  The banks will face competition.  And while they may indeed try to manipulate the market and enrich themselves beyond a reasonable profit, the competition will be there or arise to take advantage of any opportunity that an existing bank or banking cartel might create. 
Title: Re: Monetary hijinks
Post by: Andreas on June 12, 2012, 04:12:07 pm
There are no guarantees. We're screwed as things are now, yet I think it's careless to assume that doing away with one problem will automagically do away with the other problems.
I also think the temptation to play God-of-Markets will always be there, and that it will always be greater for bankers, whose business is the handling (manipulation) of money, than for other holders of large cash reserves, since these others will have other business as their prime concern (manufacturers manufacture, executives execute, inheritors squander, etc.). Not that it prevents them from being amateur bankers, of course, but they won't have that singular perspective on the power of money that comes from making a living out of bending cash to your will.
It's an occupational corruption, the magus malady. Just like lawyers become infatuated with the ability to bend "reality" through manipulating law, so do bankers become infatuated with being money magi. Whether it's true that all lawyers and all bankers suffer the magus malady is beside the point, some do, and the ones that do wield enough power to be a problem.
Title: Re: Monetary hijinks
Post by: myrkul999 on June 12, 2012, 04:59:07 pm
There are no guarantees. We're screwed as things are now. I think it's careless to assume that doing away with one problem will automagically do away with all problems.

Unless it's the root problem. The monopoly that the current banking system has is what has allowed it to grow into the monstrosity that it is now.

Your other points are all very good. Bankers do tend to suffer the "magus malady" (great phrase, by the way), but, competition from those who do not will tend to keep those who do in check. I'm not going to pretend that allowing competition will completely prevent banking malfeasance, but at least it will be an aberration, instead of systemic.
Title: Re: Monetary hijinks
Post by: Warren on June 12, 2012, 05:16:26 pm
Take the guns out of the system and everything calms down, a lot.




The more I learn about free banking the more I want to play a board game based on it. Not an old-school game but one of these modern ones where the box weighs like en pounds and there are 100s of components and cards and a massive depth of play and a high replay value. I can imagine myself happily playing this for hours. Hopefully, for my sake and the sake of my family, it would have a solitaire option.

Jeeez, I am such a dork.
Title: Re: Monetary hijinks
Post by: Andreas on June 12, 2012, 06:20:10 pm
Take the guns out of the system and everything calms down, a lot.




The more I learn about free banking the more I want to play a board game based on it. Not an old-school game but one of these modern ones where the box weighs like en pounds and there are 100s of components and cards and a massive depth of play and a high replay value. I can imagine myself happily playing this for hours. Hopefully, for my sake and the sake of my family, it would have a solitaire option.

Jeeez, I am such a dork.

You're definitely on to something there...
In addition to the minecraft AnCap simulation, there are a lot of these things it'd be fun to simulate in games.
Title: Re: Monetary hijinks
Post by: wdg3rd on June 12, 2012, 09:43:30 pm
Take the guns out of the system and everything calms down, a lot.

Take the government guns out.  Those in the hands of bank staff and customers threaten nobody except them (government) and other thieves.
Title: Re: Monetary hijinks
Post by: Warren on June 12, 2012, 09:57:57 pm
Well, yes. Personal armaments would not be "in the system".
Title: Re: Monetary hijinks
Post by: macsnafu on June 13, 2012, 09:29:52 am

The more I learn about free banking the more I want to play a board game based on it. Not an old-school game but one of these modern ones where the box weighs like en pounds and there are 100s of components and cards and a massive depth of play and a high replay value. I can imagine myself happily playing this for hours. Hopefully, for my sake and the sake of my family, it would have a solitaire option.

Jeeez, I am such a dork.

You might find this funny, then:  http://www.cracked.com/video_18427_game-thrones-board-game.html

Title: Re: Monetary hijinks
Post by: Andreas on June 13, 2012, 02:19:37 pm

The more I learn about free banking the more I want to play a board game based on it. Not an old-school game but one of these modern ones where the box weighs like en pounds and there are 100s of components and cards and a massive depth of play and a high replay value. I can imagine myself happily playing this for hours. Hopefully, for my sake and the sake of my family, it would have a solitaire option.

Jeeez, I am such a dork.

You might find this funny, then:  http://www.cracked.com/video_18427_game-thrones-board-game.html



Ugh. Game of drones.
I like my pulp fantasy with a little less pompousness, you know?


I do like the little prick. I hope all the others die, no spoilers please :D
Title: Re: Monetary hijinks
Post by: srogerscat on January 07, 2014, 09:36:09 am
Silver and gold.   Hmmm.

OK, so Augrams and Silgrams are the currency.

Um.  Hm.  I have a mild problem with this.

Quantum Vibe  - and EFT for that matter, have insane levels of cheap energy available to use.

How much value will silver and gold, or any metal have when the extraction costs from a given volume of Terran seawater will be trivial?  Or just from rocks.  Granite has enough Uranium to justify the cost of extraction if the price of Uranium were to merely double, I've been told - and I have no idea if that factoid is tur, just what I've been told.

This is a mild problem, my WSOD is quite capable of handling use of Augrams and Silgrams in the context of a wonderful story.